Egypt is a large economy, with a total population of 60 million in 1996, growing at the rate of 2 percent per annum in recent years. Per caput GDP in 1996 is estimated at US$1 250. The agricultural sector contributes about 17 percent to GDP; it accounts for 39 percent of total employment and about 14 percent of total merchandise exports.
Significant economic policy reforms have been instituted since 1986, in two phases. The first phase (1987-89) covered price reforms, relaxation of marketing controls, removal of delivery quotas for 10 crops, and reduced subsidies on inputs. In addition, the export of citrus was opened to the private sector. Little progress was made, however, in the cotton sector until 1994.
The second phase (1990-94) consolidated the earlier reforms and contained the following principal features:
Considerable progress was made in most of these areas. Although cotton prices fell short of the original target of 66 percent of the five-year average export price, they exceeded 84 percent of the "spot" export price by 1992, and exceeded the border prices in 1993 and 1994. Furthermore, cotton marketing was liberalized in 1994. Rice delivery quotas were removed earlier, in 1991. Private dealers distributed over 80 percent of fertilizers in 1992 and the Government adopted a comprehensive plan to liberalize the seed sub-sector. In addition, the exchange rate became market-determined in 1991.
Despite the impressive performance in implementing economic reforms, Egypt faces considerable challenges in the area of poverty and food security, and therefore what happens to the agricultural sector is critical. The majority of the working population in agriculture consists of small family farmers. Consequently, any decline in agricultural production resulting from agricultural trade liberalization can have a major impact on family incomes. It is mainly for this reason that reforms were implemented with great caution. Some studies have shown that the percentage of the population living below the poverty line might be increasing, especially after the implementation of the first phase of reforms.
Egypt is also a large food importer, with imports exceeding US$3 billion in recent years. This excessive dependency on imports, especially for some of the main staples, is another area of concern. The Government desires to raise the level of self-sufficiency in food, in part because of the risks associated with reliance on a single major source of export earnings to finance food imports, namely petroleum products.
In the UR, Egypt presented base tariff rates for over 600 agricultural tariff lines and offered to bind all agricultural tariffs. For most products, the bindings were in the range of 5 to 60 percent (Table 1), with a commitment to their progressive reduction. It is estimated that the unweighted average of bound rates in 1998 was about 48 percent, down from 62 percent in the base period. It is expected to fall to about 28 percent by 2004. Egypt also committed itself to bind a small number of specific tariffs on tobacco and products. It disinvoked GATT Article XVIII:B (on trade measures taken for balance-of-payments reasons) in June 1995, undertaking to remove all existing import prohibitions under that Article. There were no other commitments in the area of market access, e.g. tariff rate quotas.
Table 1. Bound tariffs on selected agricultural products
Product group |
Bound rate |
Selected products |
Bound rate (%) |
Cereals |
5-20 |
Wheat |
5 |
Rice |
20 | ||
Barley |
10 | ||
Live animals |
5-80 |
Live sheep and goats |
10 |
Meat |
5-80 |
Beef |
10 |
Meat of sheep/goat |
5 | ||
Poultry meat |
80 | ||
Vegetables |
5-40 |
Tomatoes |
20 |
Potatoes |
10 | ||
Fruit |
20-60 |
Citrus fruit (oranges) |
60 |
Vegetable oils |
5-60 |
Olive oil |
20 |
Other vegetable oils |
20 | ||
Dairy products |
5-60 |
Milk |
30 |
Sugar products |
20-60 |
Sugar |
20 |
Source: Egypt's Uruguay Round Country Schedule, 1995.
Applied tariffs have mostly been much below the bound rates. The maximum tariff has been reduced since 1991 to 50 percent, with some exceptions such as alcoholic beverages and whole poultry. In 1998, a Presidential Decree reduced all applied tariffs by 5-10 percent, e.g. the 50 percent tariff was reduced to 40 percent and 35 percent lowered to 30 percent. The resultant unweighted average of applied rates on all agricultural products (except alcoholic beverages) was estimated to be 19 percent (21.8 percent including service fee and surcharge), against the bound rate of 48 percent. Applied tariffs on wheat, maize and sorghum were 3 percent in 1999. Similarly, tariffs on vegetable oils were very low: 1 percent on oils from soybean, palm, sunflower, cotton and maize; and 5 percent on groundnut oil, olive oil, coconut, copra and rape oil. One exception was oils imported in retail packs, which faced tariffs of 20 percent. Tariffs were also very low on oilseeds.
For some products, however, applied tariffs have exceeded the bound rates. In 1998, about 7 percent of all agricultural tariff lines were involved, the excess margin being particularly pronounced for dairy products and prepared and preserved meat.2 In meetings of the WTO Committee on Agriculture this issue had already been raised in 1996 in connection with duties on some dairy products (in particular for six tariff items).
A product for which Egypt faced difficulty in tariffication and was confronted by many enquiries from WTO members in the Committee on Agriculture was poultry. Tariffication could not be undertaken until July 1997, over two years after the entry into force of the UR Agreements. An import ban was imposed in 1988 in order to protect local poultry producers. One month after the lifting of the ban, a presidential decree was issued that outlined the elements of the import regime on poultry. Four aspects of the scheme came under heavy questioning in the Committee.
First, it was alleged that the applied duty of 80 percent exceeded the WTO bound rate for the relevant period (1997) if scheduled reductions from the declared base tariff of 80 percent (for 1995) were considered. Egypt's response was that there was no commitment on particular bound rates for the intermediate years as long as the final bound tariff was 60 percent at the end of the implementation period. Second, some members claimed that assessing duty on the basis of a reference price of US$1 500 per tonne for whole poultry infringed the provisions of the AoA. Egypt responded that the duty was determined on the basis of the lowest prices recorded for imported European and United States poultry and would continue to be adjusted periodically. Third, it was noted that the decree banned the importation of poultry parts, presumably because of concerns related to Halal slaughter certification. Egypt replied that the main problem was that of determining whether imported poultry parts had come from poultry slaughtered in accordance with Islamic rules. Fourth, specification of a maximum moisture content of frozen poultry of 5 percent was considered by some WTO members to be well below the rate prescribed in many other countries. All in all, several members considered that the new import regime amounted to a disguised form of protection. These issues are yet to be resolved. Commercial imports of poultry and products have been few and far between in recent years.
On similar lines, some WTO members sought clarification at the December 1997 meeting of the Committee of the basis for and the application of the prohibition of beef imports with a fat content greater than 7 percent, and also enquired how the restriction could be justified under the national treatment provisions of GATT Article III.
One other sticking point in the Committee has been the requirement of certificates of origin. A November 1998 decree of the Ministry of Trade and Supply mandated that the importation of all consumer goods (durable and non-durable) must be directly from the country of origin and that the shipment must be accompanied by a certificate of origin notarized by all the related agencies. This issue is also yet to be resolved.
It can thus be concluded that Egypt has had a mixed experience regarding market access during the past five years. For many products, applied tariffs were consistently much lower than bound rates, suggesting that it was able to "live" comfortably with its relatively low bindings, although the consequences for trade flows (imports) are yet to be assessed fully. For several others, certain problems were encountered, e.g. on poultry and dairy products, delaying the tariffication in one case and resulting in application of almost the full range of the bound duty in others.
As regards negotiations on further reduction of the bound tariffs, Egypt may face some difficulties for many products because bound rates are low compared to those of many other developing countries. Since all countries face the same price fluctuations in world markets, those with lower bindings are more exposed. In a negotiating environment, higher benchmark rates would also have conferred some strategic advantage, e.g. in terms of greater leverage in market access negotiations. Lack of access to simpler safeguards such as those of the AoA is also a disadvantage, particularly when bound tariffs are low.
Attention has also been drawn to possible anomalies in Egypt's tariff bindings.3 For instance, the rates are highest on poultry meat and citrus fruit and lowest on cereals, beef and sheep meat, whereas most countries have higher bound rates for "sensitive" import-competing products (poultry being an exception) and lower rates on export products (e.g. fruit). On the other hand, many others have higher bound rates for cereals as well as meat. Egypt may need to review its structure of bound tariffs in order to rationalize it from the standpoint of food security "sensitivity", as said above.
In its notification to the WTO Committee on Market Access in December 1996 concerning its invocation of paragraph 5 of GATT Article XXVIII, the Government said: "We would like to inform you that Egypt would like to reserve its right, under Article XXVIII:5 of GATT 1994, to modify its Schedule LXIII in accordance with the provisions of that Article for a duration of the next three-year period beginning 1 January 1997". It is still not clear which tariff lines Egypt wished to modify and for what reasons; nor is it clear whether any action has actually been taken. This may be an indication of some concerns felt subsequently by the authorities over Egypt's bound tariffs.
In the UR, Egypt did not provide details on domestic support measures, essentially claiming that all support measures fell under one of the categories exempted from reduction commitments. It was only in May 1999 that, for the first time, it notified support measures, for the period 1995-98, in respect of green box and SDT outlays.
Total outlays on green box measures were put at about US$68 million in 1995, rising to US$76 million in 1996 but falling by half in 1997 on account of a sharp reduction of outlays on pest relief. Expenditure in 1998 plummeted to US$1.3 million, with the virtual ending of pest relief. As a result, 90 percent of the green box outlay in 1998 related to relief from irrigation difficulties (Table 2). Compared to a value of agricultural output of about US$13 billion, these outlays were insignificant.
Table 2: Green box outlays, 1995-98, in US$`000
Type of measure |
1995 |
1996 |
1997 |
1998 |
General services |
85 |
85 |
85 |
85 |
Pest relief |
67 031 |
74 516 |
37 518 |
35 |
Relief from irrigation difficulties |
1 177 |
1 177 |
1 177 |
1 177 |
Total |
68 293 |
75 778 |
38 780 |
1 297 1 |
1 The 1998 outlay on pest relief seems to be unusually low and could be an error.
Source: Notification to WTO.
Table 3 shows outlays in the SDT category. They fell sharply in 1996, roughly stabilizing thereafter at about US$2.4 million. While fertilizer subsidies represented over 70 percent of total outlays in 1995, the total was evenly divided between fertilizer and seed subsidies thereafter. The AoA sets no limit on SDT outlays but requires them to be justified. In any event, the outlays are very small relative to the value of agricultural production, and Egypt would face little difficulty in complying with the provisions of the Agreement even if these SDT expenditures were to be put into the non-product-specific AMS category.
Table 3: Outlays in the Special and Differential category, 1995-98,
in US$ `000
Type of measure |
1995 |
1996 |
1997 |
1998 |
Input subsidy available to low-income producers: Fertilizer |
5 216 |
1 219 |
1 210 |
1 194 |
Seeds |
1 917 |
1 227 |
1 227 |
1 218 |
Total |
7 133 |
2 446 |
2 437 |
2 412 |
Source: Notification to WTO.
As regards trade-distorting (i.e. amber box) support measures, incorporated in the AMS, Egypt did not claim any in the base period; nor has it made a notification to the WTO so far.4 If Egypt should decide to provide such support in the future it could still do so as long as the outlays are limited to the de minimis level of 10 percent of the value of production of specific commodities (e.g. rice and cotton) and the same percentage of the total value of agricultural production for non-product-specific AMS such as fertilizer and seed subsidies. It is thus highly unlikely that it would be constrained by the current rules on domestic support measures.
The situation could, however, change significantly if current policies on wheat, the staple food in the diet, were to change. It has been estimated that raising self-sufficiency for wheat from 48 percent to 60 percent would involve support exceeding the de minimis level.5 Limited land and water resources require that additional production of crops such as wheat must come from improvements in productivity. In the short run, this may require increasing support for farm prices so as to encourage the adoption of new technology.
An issue of potentially great importance for Egypt, as well as for other countries of the region, is the WTO rules governing capital investment in irrigation. Such expenditure is currently exempt from reduction commitments (Article 6.2). Adoption of advanced irrigation technology is vital to an increase in water supplies and improved efficiency of use. Ensuring that such investments continue to be exempt from reduction commitments is critical for the food security of these countries. To that end, Egypt needs to consider as a matter of priority the documentation and analysis of domestic support measures, both current and prospective. At the same time, it would be important to follow closely the debate on the status of investment subsidies in the new negotiations on agriculture.
Since it did not declare any export subsidies in its WTO Schedule, Egypt is not eligible to provide such subsidies in the future. In practice, this limitation is unlikely to be of any consequence, as export subsidies are neither desirable nor affordable for most developing countries. Moreover, the predominant feeling in WTO seems to be either to prohibit the subsidies completely or restrict them severely. Under current rules, Egypt would still be able to provide subsidies to lower internal transport and marketing costs and external freight costs.
Like many other developing countries, Egypt does apply some incentive measures aimed at export promotion of the types listed in Annex I of the Agreement on Subsidies and Countervailing Measures.6 For example, customs duty can be reduced on a selective basis to encourage greater local content and export-oriented activities. Similarly, the Export Development Bank of Egypt provides short- and medium-term loans to finance capital assets of export-oriented industries and credit to finance inputs for these industries. Processed agricultural products are among the beneficiaries of such credits.
Export prohibitions that formerly prevailed for some agricultural products have mostly been eliminated. For example, the ban on tanned leather exports was lifted in 1994 and that on raw hides in 1998. Previously, there were export quotas on wool, wool waste, cotton waste and tanned leather, but they were removed in 1993. A decision was taken recently to restrict the export of "baby" potatoes unless grown in specified fields. This was said to be related to EU technical regulations on imports of potatoes.
Egypt is not eligible for special agricultural safeguards (SSG), and has no experience of this contingency measure. Legislation was adopted in 1998 setting out specific regulations and procedures for examining dumping, subsidy and safeguard measures. Some anti-dumping measures have been initiated in recent years, but mostly on non-agricultural products. An investigation was in process in 1998 on EU subsidies for refined sugar. Access to the agricultural SSGs is considered to be particularly relevant for Egypt in view of the relatively low tariff bindings.
Tariff Rate Quotas (TRQs)
Egypt itself does not apply any TRQs and thus there has no experience of their administration. As regards its experience with TRQs opened by trading partners, little information is available. The one area where some experience has been gained is the export of fruit and vegetables to the EU market, but the quotas were specifically allocated to Egypt, so that there was no question of competing for access with other countries.
Egypt played a leading role during the UR negotiations in advocating the inclusion of this Decision as an integral part of the UR Agreements, and subsequently in calling for its effective implementation during the various meetings of the CoA. Egypt also provided evidence that the UR was in part responsible for the increased food import bills of the beneficiary countries, in particular because of the decline in food aid to its lowest level in 20 years; structural changes associated with the implementation of the Uruguay Round commitments; supply control measures that resulted in stock depletion; and budgetary cuts related to export subsidy reduction commitments. Egypt has also occasionally expressed disappointment with the statements of the IMF and World Bank to the CoA that the establishment of new UR-related facilities were at the present stage not justified. A number of WTO Members have endorsed the views expressed by Egypt and stressed the need for concrete action to implement the Decision.
Egypt has notified that it has no STEs as understood by the WTO. However, it has been pointed out that some agricultural STEs continue to exist and function, notably the General Authority for Supply Commodities, that imports cereals. The issue of Egyptian STEs has not so far been raised in WTO.
Egypt has not been involved as a direct party in a WTO trade dispute. As a third party, along with Japan and the United States, it was involved in a dispute on Anti-Dumping Duties on Imports of Cotton-Type Bed-Linen from India, following a complaint by India against the EU. India contended that the determination of standing, the initiation, the determination of dumping and injury as well as the explanations of the EU authorities' findings were inconsistent with WTO law.
Egypt has gained considerable experience in this area during the past five years. In view of the growing importance of these Agreements for Egypt, a summary of this experience is provided below.
First, there were two SPS-related experiences regarding the importation of poultry products. One concerned a decree banning the importation of poultry parts because it was difficult to ascertain whether or not the imported parts came from poultry slaughtered in accordance with Islamic traditions, i.e. Halal. The second related to the specification of a maximum moisture content of frozen poultry of 5 percent, which was considered by some WTO members to be well below the average moisture content permitted in many other countries (see subsection 2.1 above).
Second, some WTO members sought clarification in December 1997 of the basis for and application of the prohibition of beef imports with a fat content greater than 7 percent. Egypt's response was that its Standard N_ 1522 of 1991 required that parts of meat imported for direct consumption should not contain more than 7 percent of fat, while parts of meat imported for processing purposes should not contain more than 20 percent. These percentages were based on standards established by experts, taking into account chemical changes in fats as a result of storage and handling conditions in the Egyptian climate and possible effects on public health.
Third, the Ministry of Agriculture restricts all imports of cottonseed to specified port areas as a precaution against the introduction of potentially harmful pests and diseases.
Fourth, in June 1999, the Ministry of Trade and Supply issued a new Decree banning the importation in that year of some food products from the EU that might be contaminated with Dioxin. The ban affected mainly meat, egg and dairy products.
Fifth, as regards fruit and vegetable exports to the EU market, there have been no particular issues. It is generally felt that most of the SPS measures applied by EU on these products are justified. In fact, one study found that a group of EU traders surveyed considered that measures applied by many other countries were more restrictive than those of EU.7 One interesting exception to this generalization related to a change in the rule (towards a stricter import regime) following the establishment of the EU single market in 1993. With the single market, EU-wide standards were raised in 1998 in order to protect the Union's southern members, which essentially meant that exporters faced higher standards overall. While this may be WTO-compatible, a grey area was why would Italy allow the import of citrus from infected areas only in periods of domestic market shortage if the danger of infection were that significant. This may be an issue for Egypt to pursue.
Finally, a decision was taken recently to restrict the export of "baby" potatoes unless grown in specified fields. As noted above, this was said to be related to EU technical regulations on imports of potatoes.
Food accounts for roughly 80 percent of all Egyptian agricultural imports, a share which has not changed since the mid-1980s. By contrast, the share of food products in total agricultural exports has doubled, from about 30 percent in 1985-87 to 65 percent in 1996-98. The main export products are cotton, rice, fresh oranges, potatoes and fresh onions, while the principal imports are wheat and wheat flour, maize, frozen meat, dairy products, refined sugar and vegetable oils. Egypt has a large deficit on agricultural trade, amounting to an annual US$2 550 million in 1985-87 (imports of US$3 218 million and exports of US$668 million). This deficit had risen by 25 percent by 1996-98, reaching an average of US$3 180 million as imports increased while exports declined (see Figure 1).
Agricultural imports declined steadily during 1985-93, from US$3 700 million in 1985 to a low of about US$2 300 million in 1993. They rose by 22 percent in 1994 and again in 1995, and by 15 percent in 1996. After a 11 percent drop in 1997, imports increased again in 1998. As a result, the average value of imports in 1995-98 was 37 percent higher than in 1990-94 (Table 4), but because the trend was strongly negative, 68 percent higher than the extrapolated values for 1995-98.
Table 4: Agricultural trade in 1990-94 and 1995-98 (average annual value, in million US$, and percentage change)
Period |
Imports |
Exports |
Net imports |
|
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1 (b) - (a) 2 (b) - (c) 2 |
2 641 3 612 2 151 971 (37%) 1 461 (68%) |
426 519 307 92 (22%) 211 (69%) |
2 215 3 093 1 844 878 (40%) 1 249 (68%) |
1 Extrapolated value based on 1985-94 trend. 2 Numbers in parentheses are percentage changes over (a) and (c) respectively. Source: Computed from FAOSTAT data. Agriculture excludes fishery and forestry products. | |||
Agricultural exports, which are relatively much smaller, were also on a declining trend until 1993 (a linear decline of about US$30 million per annum). In 1994, exports shot up by US$192 million, a rise of 53 percent. There followed three consecutive years of decline, ranging from 3 percent to 15 percent, and a sharp upsurge of 30 percent in 1998. Because of the weak pre-1994 performance, the average value of exports in 1995-98, at US$519 million, was still 22 percent higher than the average for 1990-94, but (since the 1985-94 trend was strongly negative) 69 percent higher than the extrapolated trend value.
Figure 1: Agricultural trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)
Source: FAOSTAT
The import surplus in 1995-98 was consequently 40 percent (US$878 million) higher than in 1990-94, and in relation to the extrapolated trend values it was 68 percent higher.
Table 5 shows, on a comparable basis, trends in the volume of exports of selected major export items, which on the whole were upward. Export performance was particularly impressive for rice and potatoes, where the volume increase in 1995-98 was 73 percent and 87 percent, respectively. Exports of oranges were more or less stable, but the 1995-98 volume was well above (115 percent) the extrapolated trend figure.
Table 5: Exports of major agricultural products in 1990-94 and 1995-98 (annual average, in thousand tonnes)
|
Period |
Cotton |
Rice |
Fruit & Veg. |
Oranges |
Onions |
Pota- toes | |
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1 Percentage change: (b)/(a) (b)/(c) |
41 51 neg. 24.4 - |
161 279 256 73.2 9.0 |
474 659 540 39.1 22.0 |
89 90 42 1.0 114.7 |
89 119 145 32.7 -18.5 |
174 326 201 87.4 62.4 | |
1 See note 1 to Table 4. Source: Computed from FAOSTAT data. | |||||||
Further analysis would be required to identify particular factors that have contributed to the growth in exports since 1995 and is essential for developing negotiating positions on market access in the new WTO negotiations on agriculture.
As noted above, food predominates in agricultural imports but has also become increasingly important as a share of exports (32 percent in 1985-87 and 65 percent in 1996-98). Hence, the evolution of the trend in food imports is inevitably similar to that of agricultural imports. They declined by some US$3 billion in 1985 to a low of US$1.9 billion in 1993 (Figure 2). They subsequently rose every year until 1998 (except in 1997). Despite the negative trend over the entire period, the average value of imports in 1995-98 was 42 percent higher than in 1990-94 (Table 6), and it was even higher (74 percent) in comparison with the extrapolated trend values.
Table 6: Food trade in 1990-1994 and 1995-1998 (average annual value, in million US$, and percentage change)
Period |
Imports |
Exports |
Net imports |
|
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c) 1 (b) - (a) 2 (b) - (c) 2 |
2 086 2 954 1 702 868 (42%) 1 252 (74%) |
265 330 309 65 (25%) 21 (7%) |
1 821 2 624 1 394 803 (44%) 1 231 (88%) |
1 See note 1 to Table 4. 2 Numbers in parentheses are percentage changes over (a) and (c) respectively. Source: Computed from FAOSTAT data. Food excludes fishery products. | |||
Food exports have been on a rising trend, in contrast to other agricultural exports, and have grown since 1991. In 1995-98 they averaged 25 percent more than in 1990-94, but were only 7 percent higher than the extrapolated trend value.
Despite this impressive export performance, net food imports have been rising. In 1995-98 they averaged 44 percent more than in 1990-94 and 88 percent more than the extrapolated trend value. Thus, Egypt's experience with food trade has been negative, even more so when viewed against the trend.
Figure 2: Food trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)
Source: FAOSTAT
Table 7 compares the quantities imported of selected major food items in 1990-94 and 1995-98. In the latter period they were much higher for maize and sugar (56 percent and 76 percent higher, respectively). For other products, the increases were typically less than 10 percent, including for wheat and wheat flour, Egypt's major food import.9
Table 7: Imports of major food products in 1990-94 and 1995-98 (annual average, in 000 tonnes)
|
Period |
Maize |
Vegeta-ble oils |
Total meat |
Total dairy |
Sugar | ||
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c) 1 Percentage change: (b)/(a) (b)/(c) |
6 095 6 521 5 716 7.0 14.1 |
1 763 2 750 1 707 56.0 61.1 |
690 741 811 7.4 -8.5 |
133 138 86 4.1 61.2 |
601 555 471 -7.6 18.0 |
544 959 325 76.2 195.3 | |
1 See note 1 to Table 4. Source: Computed from FAOSTAT data. | |||||||
In the final analysis, what can be said of the experience with total food imports relative to total agricultural exports? In 1985-87 the ratio averaged 3.8, i.e. food imports were 3.8 times higher than agricultural exports. The ratio shot up in 1988 to 5.0, remaining at around that level until 1993. After a dip in 1994, it surged again in 1995 and remained at this higher level (over 6.0) until 1997, falling a little in the subsequent year. As a result, the ratio averaged 5.7 in 1995-98, some 16 percent higher than in 1990-94, and still 11 percent higher than the extrapolated trend value. Thus, in summary, there was a marked deterioration in the balance between total food imports and total agricultural exports during 1995-98, compared to the previous five years as well as to the extrapolated trend values.
Figure 3: Ratio of the total value of food imports to that of total agricultural exports, 1985-98
Source: FAOSTAT
Based on the review and analysis in the previous section, this section summarizes some of the key issues for Egypt in further negotiations on agriculture and points to the key areas where further analysis, studies and institutional strengthening may be required as part of the preparation for these negotiations.
The review in Section II showed that the AoA provisions on domestic support and export subsidies by and large did not circumscribe current Egyptian policies, while some difficulties were noted in the area of market access.
A thorough analysis of domestic support measures was not possible for lack of information on those of a trade-distorting nature (the AMS category). However, the absence of relevant information in Egypt's WTO commitments essentially implied that the AMS, if any, fell within the de minimis levels. That was seen (in Table 2) to be the case for non-product-specific AMS, where Egypt could provide support up to roughly US$1 300 million without breaching current AoA rules and actual green box outlays were far below the de minimis level. For product-specific AMS, too, as regards such commodities as rice and cotton, support expenditures have probably been well within permitted limits.
Notwithstanding the above, rather than live with the uncertainty of its position, and possibly face inquiries by WTO members from time to time, it would be desirable for Egypt to assess its AMS levels carefully for recent years and update them periodically. The exercise would not only be valuable per se, as part of the policy analysis process, but would also be useful in the WTO context.
Furthermore, there are good reasons why Egypt needs to carry out this analysis for the future too. Many Egyptian experts hold the view that the reason why national debate has not so far addressed squarely the desirable level of self-reliance in wheat is perhaps to be found in the large food aid shipments of wheat received by the country and in export subsidies which masked the potentially much higher food import bill. In that situation, the low level of support to wheat made good economic sense but that strategy has no validity now. The debate is likely to start now not only because of the high import bill but also because of the great importance of wheat for food security. One study has concluded that raising the self-sufficiency ratio for wheat from the 1994/95 level of 48 percent to 60 percent would involve product-specific outlays in excess of the de minimis level, in breach of current WTO commitments.10
One other issue in this area that needs to be clarified and fully understood is that of the AoA rules on investment in irrigation. At present, investment subsidies seem to be exempted from the reduction commitment for developing countries, although some questions have been raised in the CoA on such subsidies granted by other countries. In view of the importance of irrigation to Egypt, it is desirable for it to document its own irrigation subsidies carefully and, more importantly, to follow closely the debate on this subject in WTO in order to ensure that the right to grant such subsidies is preserved.
On market access, Egypt's only commitment was on bound tariffs. It was seen above that its bound rates are generally lower than those of many developing countries, including most countries of the region. It is not clear whether tariffs were bound on the basis of some analysis, e.g. an examination of trends and instabilities in global commodity markets and their possible impact on import-competing sectors. Since the next round of negotiations may result in further reduction of bound rates, Egypt needs to analyse carefully its tariff situation, drawing upon its experience with applied tariffs over the past five years and taking into account prospective trends and instabilities in global commodity markets. It also needs to formulate a position on access to agricultural SSGs, which are particularly valuable when bound tariffs are low.
Its relatively low level of tariff bindings also makes it difficult for Egypt to include many of its agricultural products in a regional trading agreement with countries that have higher tariff bindings.
Since the EU countries are the main export destination of Egypt's fruit and vegetables, a thorough understanding of the EU import regime is of utmost importance, the more so in view of the new WTO negotiations on agriculture. Roughly 60 percent of fruit and vegetable imports into EU originate from countries which are not granted trade preferences, which indicates the scope for expanding exports to this market. Some of the key questions for Egypt to consider and analyse are whether it should: i) oppose the entry price system fundamentally; ii) not oppose it, but seek to negotiate further reductions of the protective elements of the system, i.e. entry prices and additional tariffs; or iii) negotiate for increased quotas, while accepting the current protective elements.11
Assessment of the benefits and costs of each option requires a thorough analysis. For example, the third option is attractive if exportable surpluses are expected to be limited to current levels, since in that case quota rents will remain high. The second option is to be preferred if Egypt expects its exports to increase as a result of reduced EU border protection. If it could substantially increase its exports at competitive prices, the first option (fundamental reform of the EU import regime) would be attractive. Of course, the real world could be very different. For example, non-preferential exporters might raise their share of that market. Similarly, the EU might replace its current regime by one based on ordinary tariffs only, but at levels that accord even greater protection than now.
Other aspects of EU's fruit and vegetable regime also need to be examined, bearing in mind that EU also has access to SSGs, which, if applied, would add further to the protection. On market access, how EU makes its minimum and current access commitments is a matter of interest. In the UR, its minimum access commitments were set by aggregating all vegetables into one category and all fruit into another, which made it easier to meet its minimum access commitments (5 percent of the base-period consumption level). According to some analysts, market access would have been larger if the commitments had been based on disaggregated product lines.
A second aspect is EU's option, under the AoA, to subsidize exports of fruit and vegetables, subsidies which amounted to 72 million ECUs in 1996/97. If the subsidized exports are to a market also supplied by Egypt, the impact is obvious. The subsidies also undermine world market prices of fruit and vegetables. However, some analysts have pointed out that the overall impact of the EU export subsidies on Egypt may be indeterminate, since it reduces or eliminates the EU surplus and thus maintains higher domestic prices, which benefit preferential exporters like Egypt.12 Clearly, Egypt needs to make its own analysis before reaching a negotiating position.
A third aspect is EU's domestic support to fruit and vegetables production. However, the outlay involved is small, amounting to about 1.2 billion ECUs in 1996, or 4 percent of the total value of production. In any case, the current AoA rules provide considerable flexibility to continue these subsidies. This situation could, however, change if the "blue box" of subsidies were to be eliminated in the next round of negotiations.
The trading regime for rice is next in importance for Egypt. Its rice exports have done well and recent trends are promising. However, the world rice economy remains highly distorted. Studies have shown that the AoA was expected to benefit the rice producers (e.g. higher world market prices, increased trade) and rice-exporting developing countries. But they also warned that very much depended upon the faithful implementation of market access commitments by a limited number of countries. While the scope for export subsidization of rice is small, very high levels of domestic support to rice production as well as of border protection persist. For example, the Producer Support Estimate for rice in the OECD countries averaged 74 percent of the value of rice production in 1998 - the highest rate among all covered commodities - while the nominal rate of border protection was as high as 3.8. Obviously, substantial reform of the rice trade should be a top agenda item for Egypt in the next round of WTO negotiations.
From the experience of the past five years (summarized at the end of section 2.4 above) it is clear that SPS/TBT measures will be increasingly important for sustaining Egypt's exports. More needs to be done to document and share these experiences, domestic traders being best placed to know the reality. A concerted effort by the Government is required to survey these traders, analyze their recent experience and pursue unfair cases in the appropriate WTO forum, especially for Egypt's major export products, such as fruit and vegetables, both fresh and processed.
The effects on food security of market-oriented policy reforms have been mixed. There was a clear reduction of net farm incomes, especially of small farmers, as output prices did not rise enough to offset the increased farm input costs, in part due to reduced subsidies. Domestic market-orientation and trade liberalization have affected cropping patterns. In response to changing profitability, fruit and vegetables are expanding at the cost of cotton, wheat and rice. Although these shifts make economic sense, they are viewed by many in Egypt as constituting a negative outcome of the reform process, since cotton and wheat are considered crops of strategic importance and also have larger backward and forward linkages with rest of the economy, thus contributing more to poverty alleviation and household food security. For Egypt, it is always critical to consider food security implications of policies, including those pursued in the context of the AoA. Previous sections, especially on domestic support and market access, addressed these issue, although indirectly.
In addition to general AoA provisions, the implementation of the Marrakesh Ministerial Decision is another matter of considerable interest for Egypt, given the time and resources it has devoted it in contributing to debates on the Decision so far. The new round of negotiations provide another opportunity for working towards an effective Decision.
1 Based on a background study prepared for the FAO Commodities and Trade Division by Emam El-Gamasy, Cairo.
2 This issue came up during Egypt's Trade Policy Review at the WTO in 1999. The Egyptian authorities indicated that when applied rates exceeded the bound rates, the customs authorities levied the bound rates for WTO members. See Trade Policy Review - Egypt, Report by the Secretariat, WTO, 1999.
3 See N. Elamin, "Implementation of the Uruguay Round Agreement on Agriculture in the context of emerging issues in the food and agriculture sector in the Near East", in Report of the Expert Consultation on the Preparation for the Next Trade Negotiations on Agriculture, FAO Sub-regional Office, Tunis, 1999.
4 Some countries seem to have submitted fresh AMS estimates for current years even though no such submissions were made for the base period, e.g. Peru.
5 H. Lofgren and M. Kherallah, A General Equilibrium Analysis of Alternative Wheat Policy Scenarios for Egypt, Egypt Food Security Project No. 2, IFPRI, Washington, D.C., June 1998.
6 WTO Trade Policy Review of Egypt, 1999, WTO.
7 See H. Grethe and S. Tangermann, "The EU import regime for fresh fruit and vegetable after implementation of the results of the Uruguay Round", in Report of the Expert Consultation on the Preparation for the Next Trade Negotiations on Agriculture, FAO Sub-regional Office, Tunis, 1999.
8 Food excludes fishery products.
9 Note that the debate on increased food import bills in the context of the Marrakesh Ministerial Decision relates to the value of imports and not the volume. Import bills could rise even if there is little change in quantity, as a result of higher unit values of imports that can result from the influence of several factors, such as the nominal world market price, food aid and concessional export sales.
10 Lofgren and Kherallah, op. cit.
11 This subsection draws largely on the excellent analysis of these issues in the study by Grethe and Tangermann, op. cit.
